The stock prices have been on the rise for several weeks since early September. The uptrend has gained pace for the past two to three weeks.
The DSE general index, the DSEX, for the first time in past 21 months has crossed the 5000 point mark with the daily turnover reaching nearly Tk. 13 billion on September 18 last.
But, none, perhaps, has the faintest idea about the factors working behind the rise.
After continuous rally for nine days, there was a small price correction on Monday last. But on Tuesday, the general index, DSEX, gained more than what it had lost on the previous day.
Investment and brokerage houses usually cite a few hackneyed factors either for rise or fall of stock prices. In fact, these factors, in most cases, being theoretical in nature have little relevance to the actual causes of fall or rise of the stock prices.
Is there any valid reason/s for sudden buoyancy in stock prices?
One stock broking firm has listed 'strong economic indicators' that have added to the strength of the market. But is it so?
The economy that has been performing in more of a routine manner does not have anything extraordinary to mention about. The overall political climate has been calm since the January 05 election. But there are concerns. And the worries of the businesses are reflected well in the slowed-down investment activities.
One plausible reason that might force people to put in their money anew in stocks is the substantial cut in deposit rates by banks and non-banking financial institutions. The savers are virtually getting no return from their time deposits, once the current rate of inflation is adjusted with the interest income.
Banks are also not unhappy if their clients withdraw time deposits carrying higher rates of interest offered earlier. But should not savers go for buying government savings certificates instead of investing funds in volatile stock market under the prevailing circumstances?
The recent buying spree of the government savings tools among the people does indicate where the savers' money is going.
Are the banks and financial institutions investing in stocks market in a big way, again? Very unlikely.
Given the ongoing build-up of idle funds in the country's banking system, there could be some limited exposure to stock market. But such exposure does not have the capacity to make a noticeable effect on the stock prices. Then again foreign portfolio investment in Bangladesh market is very negligible.
Since January this year, stock prices started to creep up and the trend continued until the last week of April when DSEX crossed 4700 points mark. Then the index started falling and it hovered between 4300 points and 4500 points until middle part of August. The stock prices' climb-up started thereafter and it got pace from the middle of last month. The DSEX gained more than 370 points in last 11 trading sessions ending on September 30, 2014.
But what has been most striking feature in between all the fluctuations of stock prices during last couple of years is unabated and abnormal rise in the prices of stocks of the multinational companies (MNCs) listed on the bourses here. The trend is also helping some local well-performing stocks pick up steam.
For instance, the current market price of 10-taka share of the British- American Tobacco Company (Bangladesh) Ltd. (BATBC) is Tk. 2800 and that of GlaxoSmithKline, Tk. 1400.
What would an investor get from such a high-cost investment? The MNCs do not pay stock dividends and they offer cash dividends for they are more interested to repatriate their profits back home in cash.
If an MNC declares 1000 per cent cash dividend (Tk. 100 for each Tk. 10-share) to its shareholders, it would not be worth the costly investment. In fact, an investment of Tk. 2800 for one BATBC share would fetch Tk.100 or little more than 3.5 per cent return on his/her investment at the end of the year. Yet the prices of the MNC stocks are going up and up without any pause. The scenario remains the same with the high-valued stocks of other MNCs.
However, there could be some other reasons behind making such investments by a section of people. Maybe such reasons are beyond the purview of normal economic theories and principles. Only such 'investors' know the secret of it.
The Bangladesh stock market remains unique in its behaviour. The factors, which usually impact a stock market in other parts of the world negatively, do leave no or little impact on it. So, it is nothing unusual for the Bangladesh market and for a section of investors operating in it to act differently.
But not all investors can afford to play this way for there are risks involved in it. So, it would be wise on the part of the so-called small investors to stay away from this risky game.
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